Central bank coordinated lowering of rates - not the usual effect

Major central banks (Fed, ECB, Swiss, BOC, Sweden, and BOE) all lowered rates 50 bps. The normal reaction should be an upward spike in equities. However, we are not in normal times. The reaction has been to see a very short term spike followed by a further decline. The recent move seems desperate. It acknowledges that the global economies are doing much worse than expected. It states that flooding the market with liquidity has not had the immediate intended effect. It also means there is one less policy alternative that will be available.

Of course, the backdrop of other actions is enormous. Great Britain partially nationalizes the banks with a $87 billion plan. This is a different alternative, following more the Scandinavian model, than what was taken in the US. Iceland will be restructuring their banking system.

The money market reaction is all technical. The Fed funds rate is trading higher than the target. Repo rates are lower. Fed fund futures are looking for another 25 bp cut by December. LIBOR rates are higher and CP rates are still range-bound to slightly higher. The negative market mentality is not willing to change with current policy.